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I was thinking that the ratio would stay the same not the...

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finlay422

40 Posts.

29/04/16

18:50

Post #: 17637305
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Originally posted by flyboy77 ↑

ok, leverage 101.

Let's assume CDV at 18c, the options trading at 8c.

You have $36,000 to 'invest' in Archie and Cardinal Resources.

Shares - with $36k, you can buy 200,000.

Options - with the same $36k, you buy 450,000.

In the next 6 months, the shares run to 50c, the options are trading at 40c (the same 10c spread).

You decide time to sell.

Shares - 200k x 50c = $100k

Options - 450k x 40c = $180k.

Where do you make better money? This is leverage 101.

Noting leverage works in both directions too. If the share price craters, you'll lose much more if you're holding the OAs.

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I was thinking that the ratio would stay the same not the spread. Just to clarify is there any reason why you might actually excerise the options.

CDV Price at posting: 19.0¢ Sentiment: Buy Disclosure: Held
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